07:47 ET Niles on Chips : Lehman chip analyst Dan Niles is forecasting the worst year ever for semiconductors; sees 18%-20% decline in 2001 semiconductor revenues vs 17% decline in 1985 (the prior worst yr); believes Q2 semi revenues are likely to be down 10% qtr/qtr with no signs of growth for Q3 other than interest rate hopes.
Niles Negativity : By now, just about everyone involved with the stock market knows that business is not very good for the semiconductor manufacturers as they have been warning of impending earnings shortfalls left and right. Regrettably, for most investors, the companies haven't had anything encouraging to say either about an imminent pickup in demand. Enter Dan Niles, the semiconductor analyst at Lehman Bros., who issued an equally depressing research note this morning that was highlighted by a contention that 2001 will be the worst year for semiconductor revenues in the history of the industry. Currently, Niles is projecting an 18-20% decline in industry revenues, and if his forecast is on the mark, it would eclipse the 17% decline in 1985 which remains the worst year of growth on record. Niles' negativity isn't new as he has been negative on the group for a while now, having downplayed the idea of a quick recovery due to a realization that the industry downturn this time isn't tied solely to an inventory correction, but also, to low end-user demand. In his note, he emphasized that the current downcycle is considerably different from the 1996 downcycle in that demand is weak in the PC, wireless, and networking end markets and that GDP growth is decelerating. In 1996, demand issues were limited to the PC end market and the U.S. economy was accelerating from GDP growth of 2.2% in 4Q95 to 4.1% in 4Q96. Niles noted that the economics group at Lehman Bros. is forecasting 1.9% growth in 2001 following 5.0% growth in 2000. Other factors driving Niles' negativity are inventory levels being at worse levels today than in 1996, the end of "free wheeling" spending by dot-coms, the residual pullback in spending by old economy competitors, and an expectation that pricing will be the next shoe to drop, prompting the next leg down in the cycle. Niles conceded that this downcycle could be like the mid-80s again for the semiconductor companies when it took 2-3 years for demand to reach a level commensurate with supply. Subsequently, he thinks it will take a minimum of another 6-9 months to hit bottom, and he continues to advise investors to underweight semiconductor stocks through the summer and to use any interim rallies to lighten positions. For good measure, Niles lowered EPS estimates on Intel (INTC 23.29 -0.335), Texas Instruments (TXN 27.99 -0.27) and Cypress Semiconductor (CY 15.26 -0.50) citing, among other things, margin concerns. Needless to say, if his dour outlook for the semiconductor industry proves correct, one can surmise that a number of companies outside the semiconductor industry haven't seen the worst of their problems either-- a chilling thought to be sure as summer approaches and the Nasdaq trades at its lowest level since the fall of 1998.--
Patrick J. O'Hare, Briefing.com
Not a pretty picture for the next few months. Saw a PR today that Agilent (formerly part of HP) is introducing a 10% pay cut, across the board, for its employees. Ouch!
Jim |
